The surprise May 31 dollar-propping action by 12 monetary authorities carries over to currency markets around the world. In Tokyo the yen finishes at ¥85.20.
Mr. Kantor proposes to Mr. Hashimoto that the United States and Japan hold automotive talks in Geneva June 12 and 13. He adds that Washington is prepared to send either technical experts or subcabinet officials in order to resume comprehensive negotiations on an agreement; appropriate-level follow-up talks then could be held June 20 and 21. The top U.S. trade official also maintains in his letter that emergency consideration of Japan's WTO complaint, which the United States so far has managed to block, is inappropriate because such an expedited process would not advance Washington's ultimate objective of gaining agreement with Tokyo on all three outstanding automotive issues.
Transport Minister Shizuka Kamei turns down a direct appeal by Secretary of Transportation Federico Pena to approve the 11 new routes to Asia via Japan sought by American carriers. The Japanese official reiterates that Tokyo wants a complete review of the 1952 bilateral air services pact before taking up the beyond rights issue.
Mr. Hashimoto formally notifies Mr. Kantor that Tokyo is prepared to meet with Washington over the automotive issue June 12 and 13. The MITI minister insists again, however, that the consultations must be limited to the compatibility with world trade rules of the White House's pending sanctions move against luxury cars. U.S. economic policymakers have argued that such a narrow focus would not be productive since the two sides simply would be going over old ground with no hope of changing the other's position. Mr. Hashimoto also makes another appeal for expedited handling of Japan's WTO complaint, saying that the proposed sanctions already are taking a toll on the five biggest Japanese automotive makers, all of which have announced plans either to trim output of the targeted cars for the American market or to suspend production entirely.
Testifying before a Diet committee, Finance Minister Takemura says again that the government might let struggling banks fail. This time, though, he indicates a timeframe for the policy switch: five years. The same day the director general of MOF's Banking Bureau discloses that the nation's 21 biggest banks had an estimated ¥12.5 trillion ($125 billion) in nonperforming loans on their books as of March 31, 1995; that figure is nearly double what MOF previously had estimated. All financial institutions in Japan are projected to have held ¥40 trillion ($400 billion) in nonperforming loans at the close of FY 1994, of which roughly one-third is regarded as uncollectible. While analysts welcome the admission that the financial system's bad-loan problem is worse than previously depicted, they argue that the government still is understating the extent of the problem by one-half or more.
Japan's foreign direct investment, on a slide since FY 1989, rose for the second year in a row in FY 1994, the Finance Ministry reports. It again attributes the increase to the yen's appreciation, rising labor costs in Japan and the growth potential of many countries overseas.
Washington accepts Tokyo's stipulation that the June 12-13 automotive consultations in Geneva focus exclusively on the substance of Japan's WTO complaint. Consequently, no U.S. trade negotiators will participate in the meetings, which will be attended by members of the U.S. mission to the international trade organization. Trade and industry watchers immediately lower the odds, originally rated at 50-50 at best, that Japanese vehicle makers can avoid the 100 percent penalty tariffs on luxury cars scheduled to go into effect sometime after June 28.
Finance Minister Takemura paints a picture of the financial sector's health that is much darker than ever admitted officially before. Calling the problems worse than at any time since the Great Depression, he says that it is time for "bold and aggressive" measures. The MOF head then outlines a framework for helping banks deal with their nonperforming and underperforming loans while simultaneously assuring the long-term stability of the domestic financial system. Under this plan the Bank of Japan will continue to make emergency loans to troubled financial institutions until the year 2000 but conditions will be tightened. Subsequently, the government will not step in if private efforts to save a failing institution prove inadequate. In the meantime the country's deposit insurance system will be expanded in preparation for greater payouts to depositors at failed banks. Additionally, financial institutions will have to provide more timely and comprehensive information on their nonperforming and underperforming loans. Most analysts call MOF's blueprint an important step in the process of resolving the bad-loan crisis, but they are critical of the lack of specifics in the plan.
Stock market investors register their disappointment with the government's plan for handling the bad-loan crisis. The Nikkei average falls to its lowest level of the year, closing at 15,044.18.
The results of BOJ's new quarterly survey of business confidence, conducted in May, surprise analysts. They had figured that the run-up in the yen's value and other negative economic developments since February would lower further corporate Japan's already weak optimism about the economy's future. Instead, manufacturing and nonmanufacturing firms regardless of size were more upbeat. Based on this and other findings, BOJ policymakers conclude that the economy remains on a recovery track. They acknowledge, though, that the pace of the recovery, never very fast, has slowed.
Tokyo will not follow Washington's lead on banning trade and investment with Iran, Ministry of Foreign Affairs officials reveal. Trying to isolate Teheran internationally is not the appropriate course of action, they say.
Mr. Ochi, MOT's vice minister for international affairs, and DOT's general counsel try to resolve the dispute over FedEx's Japan beyond rights during a meeting in Washington. No progress is reported in what are described as ongoing talks.
U.S.-Japan consultations in Geneva on Tokyo's WTO complaint end after seven hours of pro forma talks rather than going over to the planned second day. No additional meetings are scheduled. In any event, Japanese officials reiterate, Tokyo will not agree to negotiations on the trio of issues at the heart of the automotive dispute until Washington abandons both its threat to slap punitive tariffs on made-in-Japan luxury cars and its demand for "de facto numerical targets" for purchases of foreign production parts by Japan's vehicle makers.
The Nikkei average closes below the 15,000 level for the first time since mid-August 1992. Driving the indicator down 1.5 percent to 14,813.46 are worries about the economic outlook.
Transportation Secretary Pena and MOT Minister Kamei informally discuss the impasse in the transpacific air cargo dispute. During the Washington talks Mr. Pena apparently says nothing about sanctions. The next day the two governments' chief aviation negotiators resume their discussions. The American team reports that FedEx and other applicant U.S. carriers are willing to accept seven Asian routes beyond Japan instead of the 11 originally sought.
Meeting in Tokyo, midlevel officials of the United States and Japan come to terms on the missing elements of a framework agreement designed to promote foreign direct investment in Japan. The pact, formally announced by the two governments the following day, commits Tokyo to provide additional funding to support more direct investment, expand tax incentives and take steps to facilitate mergers and acquisitions the three areas where work previously had not been completed. The arrangement also covers more help for foreign investors from the Japan External Trade Organization and other government-affiliated organizations, deregulation and real estate and hiring. The agreement also details a number of objective criteria that will be used to track implementation. The chief U.S. negotiator admits that the accord does not meet all of the White House's requirements, particularly in the area of tax measures, but the Department of State official says that the agreement does satisfy the Clinton administration's bottom-line goal of negotiating an arrangement that over time will boost U.S. direct investment in Japan and, in turn, exports to that country.
Prime Minister Murayama, under constant fire for weak leadership since he took office in June 1994, survives a vote in the Diet's lower house on a non-confidence motion offered by the main opposition party.
EPA sticks to its assessment that the economy remains on the path to a modest recovery in the monthly economic report for June, but that conclusion is hedged by references to weaknesses in consumer spending, residential construction and employment and the adverse effects of the strong yen. Finance Minister Takemura indicates after the report's release that a substantial supplemental budget will be compiled if the economy fails to pick up stream by the fall.
In an about-face the Murayama government says that it is prepared to resume substantive automotive negotiations with no strings attached June 22 and 23 in Geneva. MITI Minister Hashimoto announces the new round of talks at a hastily arranged press conference after U.S. Ambassador to Japan Walter Mondale earlier in the day accepted Tokyo's offer to return to the bargaining table without preconditions. The talks will be in the hands of the two countries' lead automotive negotiators. Mr. Kantor, while welcoming Japan's eleventh-hour show of flexibility, tries to lower expectations that Washington and Tokyo can achieve in the upcoming discussions the breakthrough that has eluded them during 20 months of negotiations.
The chief Japanese government spokesman indicates that Tokyo might announce an economic stimulus package before the July 23 elections for the Diet's upper house.
The high-profile transpacific fight over trade in automotive products dominates a 90-minute meeting between President Clinton and Prime Minister Murayama before the formal start of the Halifax, Nova Scotia summit of Group of Seven leaders. In opening statements at a news conference following the talks both men note that they had agreed that their governments would do everything possible to bridge the differences separating them during last-ditch June 22-23 negotiations in Geneva, although the fact that Mr. Clinton describes as "frank and open" the exchange of views on the automotive issue suggests that neither Washington nor Tokyo showed any sign of flexibility in its negotiating position. The president also reiterates in his prepared remarks that he is ready to order 100 percent penalty tariffs on made-in-Japan luxury cars if an agreement acceptable to the White House is not reached by June 28 as well as give the go-ahead for the filing of a WTO complaint against Japan.
In running down for the media what he and Mr. Murayama discussed Mr. Clinton makes the little-noticed announcement that Washington and Tokyo have decided to extend the U.S.-Japan Framework for a New Economic Partnership, due to expire in the summer. Not mentioned by the president, however, is the fact that the framework now will be used to track implementation of market access agreements already reached rather than as a mechanism to tackle other sectoral or structural problems that affect the Japanese business activities of corporate America.
The foreign share of Japan's semiconductor market dropped to 22.8 percent in the January-March period from a record 23.7 percent in the previous quarter, USTR and MITI report. Washington's response is restrained. Mr. Kantor merely says that the Clinton administration is "disappointed" that 1994's upward momentum had not carried over. The Semiconductor Industry Association's reaction is equally low-key. "One quarter does not necessarily constitute a trend," notes the trade group's president in a prepared statement.
With the U.S.-Japan automotive dispute sidelined by mutual consent, the summit in Halifax, Nova Scotia of the leaders of the Group of Seven major industrial democracies is devoted to the scheduled agenda of international economic and political matters. The participants generally see eye-to-eye on the subject of exchange rates, a subject that has proved divisive at previous summits. In the economic communique, issued June 16, they endorse the conclusions offered by G-7 finance ministers and central bankers in late April that recent exchange rate movements have been excessive and should be reversed and commit to continued coordination in currency markets. On trade the final economic statement recycles language from the May OECD ministerial meeting. The seven countries promise to implement fully the Uruguay Round agreements, resist protectionism and, in what some see as a jab at the United States, ensure a "well-functioning and respected [WTO] dispute settlement mechanism."
Fuji Photo Film takes issue with many of the arguments Kodak used to support its Section 301 claim of anticompetitive business practices in Japan's consumer photographic film and paper markets. It places the blame for Kodak's lackluster Japanese sales performance squarely on marketing errors by the world industry leader.
The Transportation Department announces that the United States will retaliate against Japan because of MOT's continued refusal to approve FedEx's applications for beyond-Japan cargo routes. The sanctions would go into effect sometime after a public comment period expires July 14. Under the DOT plan Japan Airlines Co., Ltd. and Nippon Cargo Airlines Co., Ltd. would not be allowed to carry on U.S.-bound all-freight flights that originate in Japan any cargo picked up from one or more yet-to-be identified Asian countries. MOT Minister Kamei says that Japan will counterretaliate if the U.S. sanctions go into effect. White House officials are quick to deny a linkage between the aviation dispute and the fight over an automotive pact.
The decision by a public-private Japanese organization to establish a unique quality standard for software sold in Japan raises alarms in the world-leading American software industry. Although the Japan Accreditation Board for Quality System Registration says that certification of compliance with the proposed standard would not be mandatory to sell programs in Japan, American and other foreign software houses worry that the pending JIS Z9901 software standard would become a de facto requirement. They add that there is no demonstrated need for the standard, which would be expensive to meet and could lead to the disclosure of sensitive proprietary information.
Prime Minister Murayama gives economic ministers and coalition party policymakers 10 days to come up with a new plan to boost the economy. The order comes a day after the news that the economy, as tracked by the GDP figures, barely expanded in 1995's first quarter. The premier says that the package should focus on ways to revive the nation's financial markets and support small and midsized companies hurt by the strong yen.
The OECD trims its December 1994 projections of real economic growth in Japan by more than a percentage point, projecting a 1.3 percent increase in 1995 and a 2.3 percent expansion in 1996.
Commerce's Mr. Garten and USTR's Shapiro meet in Geneva with Mr. Sakamoto from MITI and Mr. Ochi from MOT in a last-ditch attempt to craft an automotive agreement before the White House's June 28 sanctions deadline. The discussions pick up where they left off in early May, with neither side tabling substantive new proposals. About the only hopeful sign is that Japan's biggest automotive manufacturers, finally convinced that Washington is serious about retaliation, have signaled that they are willing to go at least some of the way toward meeting the U.S. demand for "substantial increases" in future American OE parts purchases. MITI decisionmakers, however, continue to block announcement of the purchasing projections on the grounds that the United States sooner or later will treat them as "numerical targets."
MOF officials disclose that the ministry will hold talks soon with domestic financial institutions about revamping a two-year-old bailout plan for seven housing loan companies. Known as jusen, these mortgage providers have ¥6 trillion ($60 billion) of soured loans on their books and at the same time owe more than twice that amount to their backers nationwide commercial banks, trust banks and regional banks, plus agriculture-related financial institutions. The original 10-year rescue plan has had little impact because of the prolonged slump in the real estate market.
With Washington and Tokyo still far apart on all three issues involved in the automotive negotiations despite round after round of discussions at both the subcabinet and the expert levels, the heads of the two negotiating teams decide to ask their bosses, USTR Kantor and MITI Minister Hashimoto, to join them in Geneva June 26. In the meantime, it is agreed, talks will continue.
Messrs. Kantor and Hashimoto hold an evening round of negotiations in Geneva. Afterward analysts rate the chances of a settlement to the 21 months of sparring over transpacific trade in automotive products as virtually nil. The MITI chief reiterates that OE parts purchasing forecasts involving numbers of any type are out of the question. He also states yet again that the government will not endorse parts sourcing plans announced by car and truck builders. Moreover, with just 36 hours or so left before the Clinton administration's sanctions deadline, Washington and Tokyo still have not ironed out all of the details concerning deregulation of Japan's replacement parts market and better access by foreign automotive manufactures to the Japanese dealer network.
The Japanese government unveils its latest economy-boosting package, the sixth assembled since August 1992. Domestic and foreign observers are unimpressed. They argue in part that the plan relies too heavily on old ideas for stimulating domestic demand, such as spending more than three-fourths of the money originally budgeted for public works in FY 1995 before October and extending through 1996 a ¥2 trillion ($20 billion) rebate on personal income taxes. Critics also cite the vagueness of other proposals or call more specific plans half steps. They are intrigued, however, by the government's pledge to study whether public monies should be used directly to help financial institutions write off the bad loans now on their books.
Stock market investors deliver a quick verdict on the new stimulus package, particularly the absence of more aggressive measures to prop up equity prices and attack the financial system's bad-loan problems. The Nikkei average, which had managed to climb back over the 15,000 mark only in the two previous trading days, drops 2.6 percent to close at 14,759.05.
The odds favoring retaliation over a negotiated solution to the automotive fight reverse abruptly. The flip-flop occurs after Mr. Kantor abandons the Clinton administration's demand for numbers. This concession which has repercussions for resolution of the dealer access issue in addition to its primary impact on the nature of the Japanese automotive industry's parts purchasing plans is the compromise Washington previously had refused to make even while it abandoned most of its original specifications for a comprehensive automotive pact. In the end White House economic strategists apparently conclude that the ultimate show of American flexibility on the numbers question as well as on the issue of Tokyo signing off on the industry's parts sourcing plans offers the only prospect for salvaging a government-to-government agreement on dealer access and deregulation of the parts aftermarket. With this difficult choice made along with the decision that the United States would supply its own numbers the final provisions of an automotive agreement fall quickly into place.
President Clinton announces the conclusion of a framework automotive agreement and the end of Washington's sanctions threat at a midday White House news conference. He says that the arrangement's terms more than meet his administration's bottom-line negotiating objectives: "[It] is specific, it is measurable, it will achieve concrete results." Mr. Kantor uses similar language in describing the deal at a joint press briefing with Mr. Hashimoto in Geneva. "We have a voluntary [parts purchasing] plan, we have objective criteria and we have the ability to verify progress." Mr. Hashimoto likewise claims victory for Japan. He argues that the absence of numerical targets in the agreement demonstrates that Washington finally had accepted Tokyo's position that the activities of corporate Japan fall beyond the government's reach. The MITI minister goes on to stress that any numbers included in the document he and Mr. Kantor initialed are not legally binding; they merely represent U.S. projections of, for example, how many dealers affiliated with Japanese manufacturers might sign franchise agreements with the American Big Three or the value of U.S.-made parts Japan's five largest automotive manufacturers might purchase for use in their North American factories and operations at home.
Analysts on both sides of the Pacific poke big holes in Washington's claim of a win on the automotive pact and smaller ones in Tokyo's victory statement. To them the only clear-cut achievement for the United States is the section on deregulation of the aftermarket for parts; even here, though, the White House had to settle for less than it sought in its last, scaled-back proposal. Trade and industry observers also find little noteworthy in the pact's section on access to the Japanese market for foreign-made vehicles. These same critics point out as well that, even by the Clinton administration's accounting, Japan's five major automotive makers are likely to expand their future purchases of American-made parts at about half the yearly rate achieved between FY 1990 and FY 1994.
With the end of the threat of Section 301 sanctions on made-in-Japan luxury cars, MITI Minister Hashimoto informs the head of the World Trade Organization in Geneva that Japan will withdraw its WTO complaint against Washington.
The United States stuns Japan, the European Community and other countries participating in long-running multilateral talks designed to bring global trade in financial services under the discipline of international rules by withdrawing its offer just a day before the deadline for a final agreement. The Clinton administration, the prime mover behind the drive to extend most-favored-nation treatment to the financial sector around the world, walks out of the negotiations after 10 key developing countries refuse to commit to reforms that satisfy minimum U.S. requirements. Treasury Department officials say that Washington will evaluate future requests by offshore companies for expansion or entry into U.S. financial markets according to how their home governments treat American financial institutions operating in or seeking access to domestic markets. At the same time they guarantee protection from any future regulatory changes for foreign financial services providers already operating in the United States.
Relative stability has characterized the yen-dollar exchange market in the month since the surprise intervention by major central banks, with the American currency ending daily trading in Tokyo between ¥84 and ¥85 with few exceptions. On the last day of the second quarter, for example, it closes at ¥84.79 versus the historic low of ¥80.38 registered April 19.
After three quarters of year-on-year declines Japan's overall trade surplus edges up 2 percent to $29.5 billion in the April-June period. Imports jumped 31 percent, but exports expanded 22.1 percent, in part because of some increase in volume but mainly due to higher dollar prices. Interestingly, Japan's second-quarter trade surplus with the United States, $12.1 billion, is slightly off from the comparable 1994 level, as purchases of American-supplied goods grew at almost twice the rate of U.S.-bound shipments.
Worries that Japan's recovery has ground to a stop or is close to doing so because of the yen's rapid appreciation and other economic negatives are eased by the news that price-adjusted GDP increased in the April-June timeframe at an annualized rate of 2.6 percent. The keys to this performance are stronger-than-expected consumer spending and higher public investment.